All Forum Posts by: Scott Le

 Oh ok that's interesting.  I thought you were just saying it because you thought I wanted to get involved in renting as opposed to flipping (which like I said, I would in a perfect world).

Do you have any good resources for learning about buying with options?  Have you ever used them yourself?  I remember they mentioned it briefly during RE School, but I don't think it was on the test so I know next to nothing about the idea.

If you are looking for buy and hold, you should check out the Seminole Heights and Tampa Heights districts (area codes 33603 and 604).  Rents in the area are typically pulling in 9.5-10% net cap for the fund I work with, although you certainly need to be careful with the hit-or-miss nature of the neighborhoods.  Plus, in South Tampa you are competing with all of the new luxury apartments that have been/are being built.  A lot of the people who can't afford those are renting a few minutes away in the Heights area. 

Just some food for thought.  Best of luck!

 Hey Fred.  I appreciate the long, well thought out post.  Just to clarify why I'm looking to flip instead of just buy and hold myself: I'm in a situation where there is very little banks will give me for leveraging rental homes despite having a good amount of assets and excellent credit because I haven't had any income in 4 years (long story short: I went back to school after my previous career as a professional poker player ended due to the online poker shutdown. I have been unemployed ever since because telling HR managers you are a former online poker pro is apparently akin to telling them "I'm an A-list porn star who also sold drugs."). I'm trying to turn real estate investing into a career. Since I have been unable to find a paying job, I have spent the last 8 months as an unpaid intern with a local buy and hold investor and have been soaking up as much knowledge as I can (I also just recently got my sales associate license!).

Rather than siphon off all my liquid cash into 5 year mortgages on cash flowing rental houses leaving me with nothing more to invest and not enough cash flow to cover my cost of living expenses, I've decided the best route for me to go with is to focus on creating quicker returns through flipping.  Hence, how we got to this point.

In a perfect world, I'd have a paying job and could invest all my money into this burgeoning rental market.  Unfortunately, it's just not an option for me at this time.

 There are definitely sales being made (at least in some areas).  My main intended farm area has about 10-12 houses per month being sold in the $100-180k range (many of which are clearly flips).  There are other potential surrounding areas that look intriguing, but are only getting action from renters (houses being bought at foreclosure but since they are never put back on the market, there's no base for comparison).

The problem it usually boils down to is how hard they are to compare sometimes.  There might be a few houses just like it with .25 mile radius that sold for $120/SF in the last 3 months, but the block the subject is on is much rougher and thus isn't an apples:apples comparison.  

Or in many cases you'll just see a TON of foreclosures being snatched up <$70k, but they're mostly just being held as rentals (or homebuyers fixing them for themselves). Like I said in the OP, the buy & hold investors are outnumbering the flippers in this area (but even so, there's still something to be said that the area is getting as much action as it has had one way or the other). In this case, I know there's a lot of money coming into the area, but it tells me little about ARV.

PS - Just got your book in the mail today!  Have been catching up on your blog for the last few months.  Great content!  

 I actually do have a very good relationship with the buy & hold manager in my office.  He has shown me most of his 30 properties and lets me see his appraisal info.  There is a lot of merit to this, but it isn't entirely useful for flipping.  The reason is because rehabbing for rentals is a lot different than rehabbing for flips.  I remember J. Scott wrote about in his business how his flips are all about making everything brand new whereas his rentals are all about restoring, patching, and saving.  

As you can imagine, the appraisals end up coming a lot closer to at cost than it would be if he was rehabbing his houses for immediate resale.  If he puts $70k into a house, it's probably appraising for no more than $80k on average (which he doesn't care about because he's in it for the cash flow from renting it for $1200).  However, if he was making everything brand new, then the house would obviously appraise for much more.  It's just hard to say what that number would be and it's often why I end up just having to guess based on $/SF. 

You are right though that it probably has a very good idea to ask the fund manager if he has contact info for the appraiser at his bank.   He might be able to answer some of my questions about what certain amenities are worth in some of these neighborhood.

I am a realtor and I work in the same office as a mid-size buy and hold fund. The rents are not consistent throughout Tampa. It can vary just as much as ARV does because of the variability of neighborhoods (i.e. South Tampa rents and ARV blow Seminole Heights out of the water). Seminole Heights within itself will vary by street (and that's really where most of the action is as South Tampa is way too expensive for a novice investor).

If you go through MLS, there really are no good comps for most neighborhoods (at least ones that aren't higher end, 200k+ homes). I see all the foreclosures being bought for <$50k, but you rarely see comparable homes in the same neighborhood then coming back 6 months later for $100k+ because most of them are being held for rentals. The neighborhoods effectively being so small (the "good street, bad street" dynamic) cuts down the chance of finding a good comp even more. A quarter mile radius will usually encompass more than one neighborhood.

What/where have you been in investing in the area?  

I live in Tampa, which is a red hot market for buy and hold investors buying foreclosures for cheap and then renting them out. The problem is that because of this dynamic, finding comps to calculate ARV for flips has been extremely difficult. The only comps MLS finds are the "before" prices (as in a "before & after"), which don't tell me anything about ARV since they are only the foreclosure prices. There are definitely people flipping, but for the most part I have no idea where they are getting ARV from (and they are outnumbered by buy & hold anyway).

Another problem with Tampa compounding my problem is how hit or miss so many of the neighborhoods are.  There are some nice neighborhoods with well taken care of homes, but then you could drive down 2 blocks and be in a real bad neighborhood.  This means I really can't expand my search radius very far when looking for comps because the area can generally change drastically from block to block.  This just makes finding comps even more difficult since the search radius has to be so small.

I'm trying to flip my first house (inability to get a mortgage means buy & hold isn't really a viable option for me).  However, everytime I see a listing, I can't find any comps and I don't wanna get stuck guessing on what a house could sell for.  Does anyone have any experience flipping in similar rental heavy markets?  

I am on the same page with you there.  I really didn't want to seek hard money unless I absolutely needed to later.  I haven't spoken to any relatives of mine, but I do have some wealthy uncles who might consider giving me a "family discount" on hard money.  That said, I feel if I have the funds right now and am only planning to do 1 project at a time (for now), then it probably just makes more sense to not pay any interest unless I had to.

On a side note, it's great to hear there's another online poker alumni translating his skills to the real estate market.  Corporate America wants NOTHING to do with poker players (in my experience), so I always like to hear other poker players succeeding in other avenues.  Thanks for the advice.

Hi Bill.  Thanks for the long thoughtful response.  We definitely sound very similar in our risk tolerance (and judging my your company name you may also have a background in "gambling"). To answer your questions (and everyone else's since many of you echoed similar sentiments):

1. Yes, I do have the funds ready to go, although of the 2 houses I have offers on right now, 1 would be a lot more comfortable than the other even if it provides less of a return (one I have projected for $67k AIC and the other is projected for $107k).  I could always cash out some mutual funds I have if I needed more money, and I probably could also consider contacting a relative to see about a loan.  I mean I probably could do that from the onset, but there's that prideful part of me that wants to do this on my own and not have to "beg" for money.  And yes, my models account for all closing costs, sales commissions, holding costs, and expect 4 months average hold time.

2. I feel fairly comfortable with the rehab budgets and fixed cost calculations I have in my model, even if I've never actually managed a rehab before.  I've walked through 100 houses with my mentor and watched him just spit out costs of things like a computer.  I made sure to run my lists by him for an estimate, and then added 10% for good measure.  I really wanted to make sure I was conservative with my 1st deal, which is why I have only made a handful of offers over the last few months because I wanted to bet conservatively and yet still feel like I had cushion to be wrong.

3. I will honestly say that the thing I'm least comfortable with is ARV, since I have had to teach that to myself. My broker is a commercial broker, so the residential stuff has been a self-learning process. I spend considerable time everyday on MLS, and feel I have a decent understanding of CMAs. I also think my expectations for both houses are WAY on the conservative side. I am not shooting for high end comps, and I made sure to use 97% of my expected listing price in my model when analyzing my numbers. It probably isn't the worst idea to see if I can find another realtor to take a look and see if they are in the same ballpark as me.

4. On the house that was 67k AIC, I know the rental market in that neighborhood very well and know if it didn't sell for my price, I could rent it at a nice 9.5% cap rate. I could then rent it until I needed my money back for another flip, and then either sell it to my mentor's fund who I know 100% will buy it or consider going to a bank (who probably would only give me 50% LTV if it's cash flowing).

On the more expensive house, my backup out is a little more cloudy since I'm not too familiar with the rents in this neighborhood.  I think I can get at least an 8.5% cap on that, but I'd be far less comfortable tying up the money it would take on this one as a rental as I would be on the first.  That said, the spread on this one is way bigger than the 1st and I'm far more confident I can get top dollar in this neighborhood than the 1st.  So realistically even if don't get my exact selling price, I have a very hard time imagining ever losing money in selling this one as long as I don't torpedo past my budget.

5. Like I said, I am using 4 months as an average hold time in my model, so I think I am being very realistic with my approximations.  

Long post, but I find it helps to write out all my thoughts and see if they make sense.  If anything I wrote sounds too looney, please let me know!  I am glad to hear financing your own deal worked out well for you and @Austin_Lee.  Gives me a lot more hope.

I'm in a situation where there is very little banks will give me for leveraging rental homes despite having a good amount of assets and excellent credit because I haven't had any income in 4 years (long story short: I went back to school after my previous career as a professional poker player ended due to the online poker shutdown. I have been unemployed ever since).  I'm trying to turn real estate investing into a career.  Since I have been unable to find a paying job, I have spent the last 8 months as an unpaid intern with a local buy and hold investor and have been soaking up as much knowledge as I can (I also just recently got my sales associate license!). 

Rather than siphon off all my liquid cash into 5 year mortgages on cash flowing rental houses leaving me with nothing more to invest, I've decided the best route for me to go with is to focus on creating quicker returns through flipping. I have been focusing on houses that fit my criteria and where I have enough money in savings to buy the house and rehab it, since my assumption has been it's either that or hard money. I know the obvious disadvantages to using my own money: lower ROI, more downside risk, tying my money up for months. I still have to imagine it's better than paying major points for hard cash.

Is it common/uncommon for first time investors to use 100% of their own cash?  Are there any other options I haven't considered (besides maybe asking family)?    

Thanks.